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On October 14, the staff of the SEC’s Division of Corporation Finance issued a legal bulletin (No. 19) regarding legality and tax opinions filed in connection with registered offerings of securities. The bulletin covers the requirements for these opinions, the staff’s views regarding the required elements for these opinions and the staff’s practices in reviewing them.

Legality Opinions

Item 601(b)(5)(i) of Regulation S-K requires that all filings for registered offerings of securities under the Securities Act of 1933 include an opinion of counsel regarding the legality of the securities being offered and sold pursuant to the registration statement. The bulletin notes that, as a general rule, counsel’s signed legality opinion must be filed as an exhibit to the registration statement before it becomes effective, and the opinion may not be subject to any unacceptable qualifications, conditions or assumptions. Among other things, the bulletin:

confirms that a legality opinion for debt securities or guarantees must refer to the law of the jurisdiction governing the agreement or instrument, must consider the law of the jurisdiction under which the registrant is organized in order to provide a “binding obligation” opinion, and may rely upon the opinion of local counsel to satisfy this requirement (in which case both legal opinions must be filed as exhibits);

confirms that in a legality opinion covering the registration of options, warrants or rights, to the extent that the registrant also registers the offer and sale of securities underlying the options, warrants or rights, the opinion also must opine on the legality of the underlying securities;

confirms that for shareholders’ rights plans (“poison pills”), because there may be a significant level of uncertainty under state law that makes it difficult for counsel to render a “binding obligation” opinion, the opinion may acknowledge the uncertainties involved and discuss the possibility of a determination that would question the legality of the rights at a later date;

confirms that when the registrant registers the offer and sale of units comprised of two or more underlying securities, the opinion must address the legality of each component of the unit, as well as the unit itself; and

confirms that purchasers of securities in registered offerings are entitled to rely on filed opinions, and that the staff does not accept any limitation on reliance.

Tax Opinions

Item 601(b)(8) of Regulation S-K requires opinions on tax matters for (i) filings on Form S-11, (ii) filings to which Securities Act Industry Guide 5 applies, (iii) roll-up transactions and (iv) other registered offerings where “the tax consequences are material to an investor and a representation as to tax consequences is set forth in the filing.” Either legal counsel or an independent public or certified accountant can give such an opinion supporting the tax matters and consequences to shareholders described in the filing. A revenue ruling from the IRS also will satisfy this requirement. Among other things, the bulletin:

confirms that a tax opinion need address only material federal tax consequences, and if the author of the opinion is unable to opine on a material tax consequence, that fact must be disclosed along with the reason why the author cannot so opine and a discussion of possible alternatives and risks to investors of that tax consequence;

confirms that a description of the law does not satisfy the requirement to provide an opinion on the material tax consequences as applied to the specific facts of the particular transaction; and

confirms that if there is a lack of authority directly addressing the tax consequences of the transaction, conflicting authority or significant doubt about the tax consequences of the transaction, counsel or accountant may issue a “should” or “more likely than not” opinion to make clear that the opinion is subject to a degree of uncertainty.